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The Billion-Dollar Club
If there was ever a milestone for India to cross that showed how it had shed its socialist past and embraced capitalism with a vengeance; ever a demonstration that showed wealth was and is being created in as much it is being distributed; India did just that this past month.
India’s biggest stock market now boasts 100 companies with a market capitalization of more than $1 billion each. A third of these 100 companies were new entrants in the Billion Dollar league. That's a $43 billion in new value (aggregate market cap of the 32 companies) shared between India Inc. and India Public.
Interestingly, among the new entrants some have shown a market value increase of up to 1100% in the financial year ending March 2006.
Target: 10% Annual GDP Growth
The growth in value is indicative of the “rising tide” in the Indian economy. Many of the companies are in industries until recently considered stagnant and mature such as shipping, chemicals, Fast Moving Consumer Goods and pharmaceuticals. That’s in addition to firms from among sectors considered buoyant such as IT, automotive, engineering and retail.
The diversified growth mirrors the policy regime laid out in the Government’s recent budget that we highlighted in our last issue.
If the growth continues on the same trajectory, it will put India on the fast track towards achieving Prime Minister Manmohan Singh’s target of 10% annual GDP growth.
More M&A Activity
An increase in market value of these publicly listed companies means one more thing: a bigger issuance of an acquisition currency and more merger and acquisition activity in India. Already 133 M&A deals were signed in the first three months of calendar 2006 compared to 100 such deals during the corresponding period of the previous year.
Financial services, pharmaceutical and manufacturing sectors like auto components are likely to see continued high levels of M&A activity with interest seen among global companies in India as an outsourcing base as well as growth in the domestic market.
The Indian pharmaceuticals market is likely to reach $30 billion by 2010, led by increased outsourcing and an ability to make more generic drugs as many international patents expire. This sector is expected to witness heightened M&A activity this year.
The automobile sector is also in the M&A mode. India is on track to becoming the third largest car market. Many automakers initiated a spree of overseas acquisitions in 2005 and many more are likely to follow over the next few years.
The banking & financial services sector recorded 17 deals as the government encouraged consolidation in public sector banking units.
IT Sector: The Momentum is Unstoppable
The momentum of Indian IT companies also seems unstoppable. The fourth quarter results of large Indian IT companies such Tata Consultancy services (TCS) and Infosys Technologies have been impressive again. TCS, the largest Indian IT company, is now a member of $3 billion league. The total revenue of $2.97 billion with a growth of 36.27% and net income of $649.17 million with a growth of 41.16% year-on-year is nothing but an outstanding performance. The second and third largest Indian IT companies Infosys Technologies and Wipro, both have crossed the mark of $2 billion revenue and employee strength of 50,000. Most importantly, the future guidance given by Infosys and Wipro (TCS abstains from giving any guidance), and the numbers of planned recruitments by all these companies are a clear signal of growth story continuing in full force.
Billionaires: A Result of Economic Reforms
The India growth story that started with the economic reforms in early nineties has delivered not only a century of billionaire companies, but also a number of first generation billionaire entrepreneurs like Naresh Goyal of Jet Airways, India’s leading private domestic airline; Sunil Mittal of Bharti Enterprises, India’s leading integrated telecommunication services company; N.R. Narayana Murthy of Infosys Technologies, India’s second largest IT services company and Subhash Chandra of Zee Telefilms, India's largest vertically integrated media and entertainment company.
Early Mover in a Paradigm Shift in Technology or Legislation
It is not that easy for new entrants to make it to the big league when industry incumbents are also keenly scouting for opportunities. New wealth has been created in India by being an early mover in a sector capitalizing on opportunities arising out of policy related changes or new technology.
So the questions Indians are asking themselves are: are the opportunities for creating great personal wealth in India going to be much greater in the future than in the past? Will there be more Billionaire Club members in the next decade? If India is expected to double its per capita income every decade, we can call it just the beginning of the story of wealth creation in India.
Bundeep Singh Rangar
Chairman, IndusView
SECTIONS Deal Watch
Even though IT and Media registered higher number of deals in the month of March, the telecom sector was the king in terms of sheer size of the deals. The Tata Teleservices deal for its 18% stake was top on the chart with the deal size of more than $600 million. Hutchison Essar was also a central theme of the “Deal Street”.
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M&A Spree Continues
The first quarter of the calendar year 2006 has registered 133 merger and acquisition (M&A) deals across the sectors. The cross border deals continued to be the major theme of the quarter, with 35 outbound and 30 inbound deals. Interestingly, while the Indian companies preferred to buy foreign companies outright in the cross-border deals, the foreign companies usually chose to buy a small chunk of shareholding in the target Indian companies.
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TMT Radar
India might have impressed rest of the world with the pace of its growth in the mobile phone segment, but the next frontier to conquer seems to be the broadband. To mark at least the beginning of a new era, even women and elderly people have started using the net more and more. Today, there are 320 women and 27 senior citizens out of every 1000 Indians using the Internet.
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Policy Watch
In its continuous effort to ensure level-playing field between different telecom operators, the Telecom Regulatory Authority of India (TRAI) has instructed operators not to charge differential tariffs for calls to BSNL, the government owned largest telecom company of India, as well as other service providers network. The telecom operators received a big relief from the apex court on the issue of sales tax by bringing down the burden on them by as much as $2.2 billion (Rs 10,000 crore) annually.
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Corporate Monitor
Foreign IT & Telecom companies continue to see India as a preferred destination. Apart from new entrants, those already here are expanding. Cap Gemini, nVIDIA Corporation, Convergys, Oracle and Telekom Malaysia, to name a few, are either hiring or investing in new facilities.
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Sector Focus: Media is the New Buzzword
Indian media industry is set to double in the next 5 years. This is the conclusion of a study done by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the international consulting firm PricewaterhouseCoopers. Internet advertising, radio and television are the segments poised to outpace the rate at which the overall media industry is growing.
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Company Watch: Infosys Technologies
Infosys might be the second largest Indian IT company, but pick up any analysis of the Indian IT industry and most probably you would find its name mentioned first. Even if it lost the tag of biggest IT company by market capitalization to Tata Consultancy Services (TCS). It still holds the honor of being the most admired Indian IT company. Let’s try to find out how sound its fundamentals are, at the time of celebrating its silver jubilee.
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People Watch: Aroon Purie
He didn’t start it from scratch, as he had a solid base to start his own magazine 3 decades ago in the rich printing business of his father. He is, however, credited to introduce the concept of news magazines to India, and fighting political emergency at a very nascent stage of his entrepreneurial career. Let’s meet Aroon Purie, the editor-in-chief of India’s largest selling English news magazine, India Today and Chairman of the company running India’s most popular TV news channel.
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Market Watch
The Indian stock market seems to be restless to make new records every month. The journey of India’s benchmark index Sensex from 10,000 to 12,000 was much more quicker than ever before. More importantly, it reached from 11,000 to 12,000 in record 19 trading sessions. The fast pace of the Indian stock market is credited to double-sided support from both the foreign and domestic funds.
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ABOUT INDUS VIEW
IndusView advises multinational companies on business opportunities emanating from India’s fast growing economy. It de-risks the growth ambitions of multinational companies operating as a trusted partner that understands the complexities of the Indian market and the commercial drivers of western enterprises.
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